Avid Technology's acquisition of Pinnacle Systems marks Avid's official entry into the consumer video-editing market. The deal, which closed last week, also gives Avid a broader product line, including its first professional-level graphics gear.
While Avid's stock price has dropped significantly since the acquisition, President/CEO David Krall remains bullish on the company's future: “The acquisition presents a unique opportunity to offer significant benefits to a wider range of content creators.”
The new Avid has three divisions: video, audio and consumer. The video division includes professional products for post-production and broadcast and will be located in Avid headquarters in Tewksbury, Mass. Audio, which includes DigiDesign and M-Audio products, will stay in Daly City, Calif., while consumer will include Pinnacle's Studio editing system and will be based in Pinnacle's Mountain View, Calif., home.
Avid's near-term focus is to jell the two cultures. With 600 Pinnacle employees joining the fold, Avid's workforce has increased to 2,700, although 15% of Pinnacle's staff will be let go in the next few months, including CEO Patti Hart and CFO Marty Dotz. Krall relocated to the West Coast to facilitate the marriage.
The bigger hurdle is integrating product and R&D. The video division, for one, will expand its engineering force by 15%. Professional users will have to wait until the next NAB to see the results, but eliminating production steps to get stories on-air more quickly and easily tops the agenda.
The vast majority of Pinnacle's professional product line—including Deko character generators and graphics systems, Liquid editing systems, and the Thunder play-to-air video server—will live on as Avid brands. They'll sit alongside existing Avid products like the iNews newsroom system, Instinct and NewsCutter editing systems, and AirSpeed and Unity video servers. Only Pinnacle's Vortex nonlinear news editing system will be scrapped.
“There's been some talk about our commitment to the broadcast market, and I think the acquisition will lay those to rest,” says David Schleifer, Avid VP, broadcast and work groups. “It really lets us architect systems that have complete editing and graphic workflows.”
Although the editing systems seem to overlap, Avid won't eliminate Pinnacle's Liquid non­linear editing line. Chas Smith, VP of the video division, says Liquid attracts users who want to edit on HDV or integrate DVD-burning: “We see that as something that will expand our market. Videographers, corporate video users, and others who create video that's not going to be televised like that system.”
As for those who create televised content, the integration of the Deko character-generator product with Avid's editing systems is the one most customers—and competitors—have their eye on. “Media-asset management of graphics, video and audio will be important in helping our customers create the highest-quality product,” says Smith.
An overlap also exists with video servers. Schleifer says Pinnacle's Media­Stream server, used primarily for on-air playback of commercials and long-form content, complements Avid's AirSpeed server, which handles on-air play­out of news. Users should expect tighter integration of those products, he says: “MediaStream's HD and SD capabilities will help us amend our product [strategy]. We never had a server for general program playout.”
The biggest change for Avid is the creation of a consumer division. Pinnacle's Studio software has roughly 50% of that market, and the goal is to ensure that when amateur editors go pro, they'll be comfortable working with the Pinnacle editing interface and then be more likely to use Avid's professional products.
The Studio line will continue to be sold as “Pinnacle Studio,” and new Consumer VP Jeff Hastings says Avid eventually will become a consumer sub-brand. Pinnacle's success with Studio stems largely from its being easy to install and use, and Hastings insists that won't change. The trick, though, is to make it easier for users to transition to more-sophisticated editing products.
“Consumers have been disappointed when they buy a professional-level system because they're so complicated,” says Hastings, adding that a new middle-ground product will address the problem.
From a financial perspective, the marriage is off to a rocky start. Avid's most recent quarterly results missed targets, and the company says third-quarter results will be off as well, citing new product delays in the broadcast segment and the impact of foreign-currency movements. The news dropped its share price from $55 to about $40 in just one day last month. On the day of the deal's closing, it dipped further.
Steve Lidberg, senior research analyst with Pacific Crest Securities, says that was due to concerns about Avid's entering the consumer market. “It's much more volatile and has lower margins than Avid's traditional businesses,” he says. “They need to show they'll be able to execute in the consumer business.”
The industry generally seems to applaud the acquisition. Raycom Media VP of Technology Dave Folsom looks forward to “one-stop shopping” for customer support. “What could come out of this,” he says, “ are more common graphic standards and communications between graphics and editing.”